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CCCTB under fire

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On 6 December, the council of EU finance ministers set out their conclusions on the European Commission’s latest corporate tax reform package, issued on 25 October, which included: a two-step approach to establishing a common consolidated corporate tax base (CCCTB); an improved double taxation dispute resolution mechanism; and measures to tackle hybrid mismatches with non-EU countries.

On the CCCTB, the council noted ‘the importance of having corporate tax rules which offer stability, legal certainty and administrative simplification to large companies, as well as small and medium sized enterprises; and, in the light of this, welcomes further discussion on the proposal on a common corporate tax base (CCTB) and on a CCCTB’.

The House of Commons European scrutiny committee has responded to the CCCTB proposals by calling for the UK to present a reasoned opinion to the EU Parliament, on the grounds that the proposal does not comply with the principle of subsidiarity. This process is subject to an eight-week deadline, which for this proposal is 3 January 2017.

In its report ‘Taxation: a common consolidated corporate tax base’, the committee urges the House of Commons to consider a reasoned opinion on the following grounds:

  • The Commission has not adequately provided evidence of the change in circumstances since its previous proposal in 2011, which had acknowledged adverse effects on investment, employment and GDP.
  • The tax base is an essential element of member states’ tax sovereignty, affecting not only the tax revenue but social and other policy choices. The CCTB removes many of these choices. Leaving member states the freedom to choose the tax rate without leaving them freedom in respect of the tax base interferes too much with their legitimate freedom in respect of corporation tax.
  • The fairness of its tax system, including the balance between equity and debt, is a matter for which member states are pre-eminently responsible and accountable to their own people. This needs to be looked at in the round in the context of each member state’s tax system, taken as a whole, without the EU imposing its solution in respect of one tax.
  • Regulating corporation tax at an EU level means that any changes have to be unanimously agreed at the EU level. This is too cumbersome to react to changes in circumstances.
  • The CCCTB is mostly limited in its effects to the EU, whereas the tax avoidance problems that these proposals are seeking to address are global or at least extend beyond the EU.